In recent months, the Decentralized Finance (DeFi) sphere has seen significant growth, with innovative decentralized exchanges like dYdX fueling adoption. The trading platform allows users to swap tokens with ease while providing them a way to earn passive income by lending their assets. This article focuses on dYdX. By the end, you should understand how the protocol works and its unique features.
What is dYdX?
dYdX is a top decentralized exchange or DEX offering its users various services, including leverage trading, borrowing, and lending. Users do not need to register an account or complete the KYC (Know-Your-Customer) procedure you start using dYdX. The protocol’s first version was launched on Ethereum a few years ago. However, its fourth version is built on Cosmos.
dYdX Origin
The dYdX decentralized exchange was developed in 2017 by Antonio Juliano, a software engineer who previously worked at Uber and centralized crypto exchange Coinbase. As stated earlier, the DEX was initially created on the Ethereum blockchain. However, due to the network’s expensive gas fees and slow processing of transactions, Juliano decided to move his DEX to StarkEx in October 2020. Two years later, dYdX revealed its plans to shift to the Cosmos blockchain.
dYdX Foundation oversees the operations of the decentralized exchange. The foundation is made up of various well-known crypto players, including Rebecca Rettig, Markus Spillman, and Arthur Cheong.
Funding
Several investors have injected funds into dYdX since its launch. They include Polychain Capital, Wintermute, Paradigm, Three Arrow Capital and Andreessen Horowitz. The DEX’s first funding round was in 2017, when it raised more than $2 million from two investors, Polychain and Andreessen Horowitz. In 2021, dYdX raised $75 million in two funding rounds, with Paradigm investing $65 million of the amount.
How dYdX Operates
dYdX uses smart contracts that allow traders to swap cryptocurrencies without middlemen. As a non-custodial exchange, dYdX lets users take full control of their assets while executing trades.
Since the Cosmos-based dYdX has yet to become fully operational (set to launch at the end of September 2023), we will show you how to trade on the StarkEx-based dYdX.
Follow these steps to start trading on dYdX:
Step 1: Go to dydx.exchange and connect your wallet.
Step 2: Confirm you are the wallet owner to access the DEX’s features.
Step 3: Use your Vault ID and Stark key to deposit crypto assets.
Step 4: Open the “Trade” section to begin placing trades using various order types such as limit and market.
Step 5: Set your take profit and stop loss, then select leverage. Once done, you can open a short or long position.
Step 6: Track your profit and loss under “Portfolio.”
dYdX Features
dYdX has several features appreciated by both beginner and experienced traders. They include:
Decentralized Trading Platform
Although the dYdX Foundation oversees the DEX’s operations, it has no control over the trades placed on the platform. Therefore, traders can conduct transactions with each other using the dYdX Peer-to-Peer (P2P) structure.
Moreover, since dYdX does not hold traders’ assets when trading, it minimizes the risk of fraud and hacks.
Perpetual Swaps
dYdX’s users can trade perpetual swaps on the exchange. For starters, a perpetual swap is a derivative instrument functioning just like a futures contract but lacks an expiry date, allowing users to stay in the crypto market for a long time.
Margin Trading
With dYdX, you can borrow funds to leverage your holding in order to open big positions that will boost your profits. However, the bigger the positions, the greater the loss.
Borrowing and Lending
Not only does dYdX support trading, but also crypto borrowing and lending. Users can take crypto loans to explore other opportunities in the DeFi space or lend their cryptocurrencies to earn interest.
Final Thoughts
dYdX is a good alternative to centralized exchanges, especially for traders who like having control over their cryptocurrencies. Besides trading, you can become a lender on the DEX to maximize your earnings.
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